When Genius Failed: The Rise and Fall of Long-Term Capital Management by Roger Lowenstein

In this classic, Lowenstein tells the story of the failure of what the media hailed as “the most impressive hedge fund in history:” Long-Term Capital Management (LTCM). Led by Nobel-Prize-winning economists, LTCM was a $100 billion moneymaking machine.

Four years later, LTCM suddenly imploded and almost brought down the global financial system. Lowenstein believes LTCM’s collapse was a harbinger of the financial meltdown of 2008. Lowenstein thinks the LTCM meltdown was the beginning of an age of financial instability that continues to this day.

Lowenstein had unprecedented access to LCTM’s key players and documents for his writing. When Genius Failed verifies Klarman’s belief that the markets are inherently unstable, and that any financial institution can fail.

Klarman is a strong advocate of margins of safety because he believes all markets are unstable and chaotic. When Genius Failed shows nobody can tame the markets or prepare for the surprises they have.

America’s Bank: The Epic Struggle to Create the Federal Reserve by Roger Lowenstein

The United States Federal Reserve System is the most powerful and influential institution in the world, yet few people understand its history. In America’s Bank, Lowenstein recounts the battle to create America’s central bank.

Lowenstein shows how Wall Street and political leaders came together and pushed the Federal Reserve Act through Congress. America’s Bank shows politics can affect, change, and disrupt the markets.

Understanding the connections between political institutions and markets can help investors understand how the economy works. Those who know how and why America created the Federal Reserve can better understand our monetary and banking systems.

Panic: The Story of Modern Financial Insanity by Michael Lewis

Lewis is one of the most popular and admired financial writers. In Panic, Lewis offers the theory that we are living in an Age of Financial Unreason.

Lewis believes emotions such as greed, fear, and hysteria are driving the modern financial system. In Panic, Lewis examines the roots of such crises as the Black Monday Crash, the Russian Default, the collapse of Long-Term Capital Management, and the Dot.com Bubble.

Lewis’s believes modern digital technology makes hysteria worse by enabling frightened and greedy people to make instant trades. Even though it was written before the 2007-2008 Meltdown.

Panic is a great introduction to one of the key ideas of value investing; the belief that Mr. Market is insane. Lewis offers tons of evidence to verify that belief.

Buffett: The Making of an American Capitalist by Roger Lowenstein

This excellent book is both a biography of Warren Buffett and an exploration of Buffett’s strategy and philosophy. Lowenstein had three years of unprecedented access to Buffett, his family, friends, and colleagues for this book.

If you want to understand Buffett; and his investing methodology, this book is a good place to start. Klarman admires Buffett because it reveals the man behind the legend and his beliefs.

You Can Be a Stock Market Genius by Joel Greenblatt

Greenblatt is a successful fund manager whose returns have outperformed the market for over 10 years.

In You Can Be a Stock Market Genius Greenblatt offers case studies of stocks that show investors what to look for in a stock. A good examination of stocks and stock analysis written in language the average person can understand.

Sorkin exposes the humanity and failings of the Wall Street Masters of the Universe in this account of the Great Crash of 2007-2008.

Sorkin shows how billionaires became desperate and frightened as they realized their system was failing. Anybody who believes in the wisdom and genius of Wall Street Titans needs to read Too Big to Fail.

Too Big to Fail shows one of Klarman’s key beliefs; that any institution or leader will fail at some point. Smart investors prepare for that failure by maintaining a high margin of safety.

Money of the Mind: Borrowing and Lending in America from the Civil War to Michael Milken By James Grant

Klarman has a deep interest in the history of money and finance. Money of the Mind shows how changing ideas about credit and lending changed the American economy.

Money of the Mind shows how changing standards of behavior can affect the markets and the wider economy. Identifying trends such as the rising use of consumer credit can help investors make money by identifying new risks and opportunities.

Mr. Market Miscalculates: The Bubble Years and Beyond by James Grant

Grant, the publisher of Grant’s Interest Rate Observer, is one of Klarman’s favorite writers.

Mr. Market Miscalculates is a collection of essays from Grant’s Interest Rate Observer that contains Grant’s opinions on the Bubble Years of 2000-2008. Grant’s observations expose many of the problems with the economy and explain why the market failed in the early 21st Century.

Mr. Market Miscalculates is a must-read for anybody who wants to understand the roots of the modern American economy and its failures.

While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis by Lowenstein

Lowenstein exposes one of the biggest risks facing the United States, out of control pensions. Lowenstein shows how pension crises disrupted cities, the auto industry, and America’s most famous transportation system.

Value investors need to read Why America Aged because Lowenstein and Klarman think an aging population will disrupt America’s economy. Lowenstein predicts a long-term retirement crisis that will reshape America’s economy and political system.

Value investors that understand an aging America can make money by identifying the stocks which can profit from that change.

The Intelligent Investor by Benjamin Graham

Graham, whom many consider the father of value investing, was Buffett’s mentor and friend. Buffett calls this the ideas in this book the basis of his investing philosophy. This book is also a favorite of the legendary Joel Greenblatt.

Buffett thinks The Intelligent Investor contains the best description of the stock markets ever published. Buffett credits Graham’s book with showing him how the markets really work.

“Picking up that book was one of the luckiest moments in my life,” Buffett wrote of The Intelligent Investor in 2011. “Of all the investments I ever made, buying Ben’s book was the best (except for my purchase of two marriage licenses),” Buffett observed in 2013.

If you want to read Buffett’s favorite book and understand the basis of his investment philosophy. The Intelligent Investor is the best book to read.

The books on Klarman’s reading list show how value investing principles work in the real world.

Those principles include distrust of the market, a high margin of safety, lots of skepticism, and a deep understanding of the markets. The books Klarman reads explain those principles and show how they apply in the real world.

Klarman shows that reading widely can make you a better investor. Klarman’s reading list can serve as a good foundation for your value investing library. A large value investing library can give you the deep knowledge you need for successful value investing.

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